RIM Is The New Palm

That's because RIM appears to be in a very similar position to where Palm was just a few years ago: A high-flying smartphone incumbent, suddenly looking very vulnerable, very quickly, as new competition shoots past it.

That's not to say that RIM isn't still selling a lot of BlackBerry devices. It is, and it's likely to continue to grow, as it expands internationally and as the broader smartphone market continues to grow.

But Palm used to sell a lot of devices, too. And the risk for RIM is that it will increasingly lose the high end of the smartphone market to Apple and Google, and be forced to become a lower-margin, low-end player. And that's not what RIM investors have in mind for the company.

How Palm became toast

When Apple first announced the iPhone in early 2007, few people in the handset industry were as screwed as Palm CEO Ed Colligan. Palm had basically invented the touchscreen smartphone -- the Treo (via Handspring, a Palm spin-off which it later acquired). And the iPhone instantly rendered it irrelevant.

Palm had moved too slowly, on both the software and hardware sides. And as smartphones became a consumer story, Palm got smoked. RIM shot past it with the tiny, cute BlackBerry Pearl, and Apple made everyone look prehistoric with its iPhone, a top-to-bottom revolution.

Sure, the Torch can list most of the same features as the iPhone or Android, such as a touchscreen, pinch-to-zoom "multi-touch," an app store, and a high-end browser based on the Webkit engine. But everything about it feels half-baked and the opposite of smooth. To get to the phone's sophisticated new web browser, you still had to deal with RIM's awkward user interface first.

It's not that the Torch doesn't work. It's just that it doesn't work on the same level as iPhone and Android. It's as though the RIM designers had seen videos of the iPhone and Android, so they knew who to copy, but didn't use their rival devices for long enough to know how slick and powerful they felt. Or didn't care to make the Torch on the same level. Or they didn't know how to.

And high-end buyers will notice the difference. It's why the people we know buy iPhones and Droids. Meanwhile, the people we know who buy BlackBerries buy them because they're cheap, or because their company buys them, or because they still think they need a plastic keyboard.

How RIM can avoid becoming the next Palm

Assuming RIM actually wants to play at the high end of the market, it needs to make big changes, fast. (If for some reason RIM doesn't want to play at the high end of the market, its profit margins and stock multiples will follow Nokia's into the tank.)

RIM first needs to put someone in charge who actually has the sense of quality to know that what it is shipping today isn't good enough to seriously compete with Apple or Android, because right now, it's not. We shudder to think how RIM's iPad clone will function, for example.

RIM could, of course, continue down its current path. But if it doesn't rapidly improve its software and hardware, it risks losing even more of the high-end of the consumer smartphone market, and competing mostly on price.

By the way, consumers are much more important to RIM than you think: During last year's November quarter -- the last time RIM revealed this stat -- non-enterprise customers represented more than 80% of its new subscribers. Sure, RIM will continue to have its enterprise customers -- those who don't leave for Apple or Android -- but the consumer market is where the growth is.

Another option is to sell the company quickly, perhaps to Microsoft. The new Windows Phone 7 OS is supposedly pretty good, but Microsoft still lacks a way to get rich off mobile. Selling cheap licenses for an operating system is a small business -- especially when rival Android is free. But if Microsoft owned RIM, it could profit from selling software, hardware, and services.

The big problem is that RIM would be very big bite to swallow right now -- it has a $26 billion market cap -- and might be too proud to sell to Microsoft today. Later, if RIM heads further downhill, it could be cheaper, but less useful. Damned if you do, damned if you don't.

Bottom line

The BlackBerry brand is strong, people still love BlackBerry Mail and Messenger, people still buy lots of BlackBerries, and carriers still like RIM. But the company is now losing the high end of the market to Apple and Google. So RIM needs to make big changes, quickly, or it's only downhill from here.